Quantitatively Ease the People!

Anatole Kaletsky, the well-known journalist with the Economist and Financial Times, is advocating Quantitative Easing for the People (QEP) over in his Reuters blog today.

The idea is to give every household $6,000 or £6,500 per person to increase consumption and spending.

The amounts are based upon the fact that these are the figures central banks have spent on QE with the banks, and it has failed to create the economic stimulus that they hoped for. Therefore, by giving the cash directly to the people, it is far more likely to succeed.

He cites four objections to such a program.

First, it wouldn’t work due to consumers paying down debt or hoarding the cash. That’s a good thing however, as it would deleverage household debt from 83% of US GDP to 70%.

Second, it would work too well and create inflationary pressures. That’s a good thing though, as we need inflationary pressure right now.

Third, it would corrupt society and they’d expect QEP every time governments have problems. That won’t happen though as QEP would create too high an inflation if it continued forever and make money worthless, so this is just a short-term thing.

Finally, that it seems too good to be true. He argues it is, and its time has come.

I would argue a different way however.

For all the interest in this program, it’s not a new idea.

It’s already been suggested by the Liberal Democrats.

It had a slight difference of approach, but the Lib Dems idea was to give every citizen shares in our banks, rather than privatise them again and keep the cash.

Effectively, the £66 billion invested by the government in RBS and Lloyds in 2008 would be redistributed back to all the people.

Like Kaletsky’s idea, it sounds laudable on first glance.

Then the practicalities arise.

All citizens get some cash or shares?

Does that include prisoners?

Do you allocate based on the severity of the crime, e.g. do murderers and rapists get cash and shares?

Oh, ok. Not prisoners then.

What about people on benefits?

Do the unemployed and disabled get the same as those who are taxpayers and workers?

Oh, ok. Not the benefits people then.

What about pensioners?

They are no longer generated taxable income?

Oh, not the pensioners then.

So it’s just working people who pay taxes?

And they all get the same each, or should it be based upon how much tax they pay and how much they earn?

As can be seen, interesting idea but not a simple one although I’m sure we will see more of this type of idea coming downstream as the QE and banking system fails to resolve our economic issues.

My own plan?

QEC.

Quantitative Easing for Chris.

Give me all the cash.

I’ll find a good place for it.

No, on a serious note, the critics are saying that whatever the government does through the banking system is failing. First it was QE and now it’s specific impetus for distributing funds to small businesses.

The Bank of England’s Inflation Report released this week indicates that the £80 billion "Funding for Lending" scheme, which the Government unveiled last month, could end up boosting banks' profits rather than channelling credit to hard-pressed businesses.

So what should be done with these billions if not given to citizens as cash or shares or to banks as impetus for growth?

Tax relief?

Why not offer it as tax relief.

I would far rather see the billions that Kaletsky wants to give as cash and Williams as shares be given to Britons and Americans as tax relief.

That way it would be proportionate and overcomes the arguments about prisoners and scroungers.

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

Also advocated by economist Steve Keen. It is a form of debt forgiveness or ‘jubilee’ which he argues is essential when debts become unpayable. He also advocates Jubilee shares which eventually ‘time out’ (after a certain number of transactions).
The question is not what is the solution but what is the underlying problem it is seeking to address. Once the problem comes into focus we might find that there are all sorts of ‘solutions’ out there. The ‘solution’ by itself however will most likely fall down because of cultural opposition, ignorance or opposing self-interest whatever the merits of the ‘economic’ arguments in its favour.
Given the acknowledged unpayability of our debts, what is the economic logic of continuing with a permanent debt overhead?
PS Is that the same Anatole Kaletsky who a few years ago was advising the French and Germans to go in for an Anglo-Saxon style debt fuelled housing boom and is now among the great and good in Soros’s INET circle of wise elders?